Over the past decade, a significant increase in the global money supply has had a profound impact on various financial markets, with cryptocurrency being no exception. Bitcoin, often regarded as a hedge against inflation, initially soared with the surge in money supply. However, recent drops in the global money supply have presented challenges for Bitcoin to reach the coveted $100K mark.
Bitcoin's Price Surge and Slowdown
Bitcoin began at approximately $69,542.78 and witnessed a remarkable surge of more than 45.82% between November 5 and 22, reaching an all-time high of $98,884.91. But this upward momentum soon slowed. From November 24 to 26, Bitcoin experienced its first major price drop since November 5, falling by over 7.06%. The market has not fully recovered from this correction, and just yesterday, BTC dropped another 0.23%. These price fluctuations highlight the volatility inherent in the Bitcoin market.How M2 Money Supply Affects Bitcoin's Price
The M2 Growth Year-over-Year (YoY) index plays a crucial role in tracking changes in the global money supply. This year, it has shown significant fluctuations. At the beginning of the year, the M2 index was at 3.19%, but it fell to -0.18% in mid-February. By early March, it sharply rose to 2.72%, only to dip again to -0.34% by mid-April. There was another sharp rise between August 5 and September 30, climbing from 4.17% to 7.09%. However, it has since fallen to 1.83%. Historically, Bitcoin has thrived during periods of rising M2 growth. For instance, when the M2 index jumped from -0.18% to 2.72% between February 12 and March 4, Bitcoin hit its previous all-time high of $73,000. If the index continues to decline, it could potentially limit Bitcoin's short-term growth potential.The Impact of Liquidity on Bitcoin's Volatility
Low liquidity often leads to higher volatility in the Bitcoin market. As liquidity decreases, price swings become more extreme, adding to the uncertainty in the market. At the present time, the global M2 supply stands at approximately $105.09 trillion, which is 2.24% lower than the $108.02 trillion supply on September 30. This decline in money supply has a significant impact on Bitcoin's price movements. It makes the market more susceptible to sudden price changes and increases the risk for investors.Here's What Investors Need to Know
As global money supply trends continue to change, Bitcoin's price will remain closely tied to liquidity changes. While decreasing liquidity may slow down Bitcoin's momentum, its long-term potential remains intact. Investors need to closely monitor macroeconomic indicators, especially the M2 index, to gain insights into where Bitcoin's price might be headed next. With liquidity at the forefront, Bitcoin's price may face more turbulence, but its long-term potential continues to be highly intriguing.READ MORE